Why are you selling your business? Understanding signaling effects of seller rationale at time of entrepreneurial exit

Entrepreneurs eventually face the inevitable in which they must exit their firms. Some choose the entrepreneurial exit path of selling to an unaffiliated individual or company. This type of exit can arise due to a variety of reasons, including life situations, strategic reasons, or other interests. The process of selling a small, privately held company, oftentimes facilitated by business intermediaries, typically begins with introducing the company to potential acquirers through confidential marketing that provides just enough information to pique interest while also preserving the anonymity of the entrepreneur or business. One important element included in the marketing of a business is the entrepreneur's reason to sell. Due to the potential information asymmetry present in the sale of privately-held businesses, this study proposes that the reason for sale, referred to in this study as the communicated exit purpose, sends varying signals to potential acquirers impacting the perception of the business opportunity and acquisition price at exit. Utilizing an archival dataset from a popular business-for-sale website, our analysis shows support that the price at exit is affected by the communicated entrepreneur's reason for exit. A separate experiment and qualitative study provide further insight into the acquirer perceptions of the business opportunity based on the stated reason of entrepreneurial exit. Our paper concludes with strategies to assist entrepreneurs regarding the disclosure of reasons for exiting.